Small firms reserving judgment on e-market

Small and medium-sized companies are constantly being told about the value of getting online. However, while B2B service providers argue they provide access to wider markets, figures show that SMEs remain to be convinced

Small and medium-sized enterprises (SMEs) are probably sick by now of hearing the line "go online or go out of business".

As often as consumers are encouraged to add goods to their shopping basket and enter their credit card details on surviving e-commerce sites, SMEs are being told that, in order to keep up, they should sign up to online business-to-business (B2B) networks.

B2B services range from simple information points to the "matching" of buyers with relevant suppliers to full electronic marketplaces, where suppliers can bid for contracts, and goods can be bought and sold online.

These networks say they provide a smoother, more cost-effective method of purchasing goods, saving time wasted searching hundreds of pages of Web catalogues for new suppliers.

B2B online exchanges first surfaced a few years ago and were predicted to take-off even as the business-to-consumer (B2C) dotcoms that depended on fluctuating advertising revenue began to crash. Since then, the actual amount of trading has been quieter than expected but hesitant SMEs are still being targeted by B2B service providers hoping to benefit from the economic downturn.

"There is pressure on a lot of companies at the moment, so we would say it is an ideal opportunity to reduce costs by using e-procurement [online purchasing] sites," says Mr Tom Guckian, chief executive of iCommerce, the Republic's biggest B2B marketplace with more than 2,300 members. "Last year, companies were waiting for some kind of indication about whether or not they should go down that path."

On the iCommerce site, businesses can complete a buyer or seller profile and request information or a quote from other businesses for free. Once registered, companies can then pay a subscription fee to iMarket, where buyers can cross-check suppliers' catalogues, and goods such as maintenance, repair and office equipment can be purchased.

But will subscribing to B2B services really cut supply chain costs for small companies? The internet may have reduced the entry cost into new markets, according to Mr Charles Kelly, a purchasing and materials management consultant, but B2B service providers charging subscription fees or taking a cut of the transaction price have yet to prove their worth.

"There are companies like iCommerce and Marketplace.ie, where you can buy general goods like office stationery, but you could find the same products just using a Web browser," he says.

"If you work hard at it, you can get them to save money for you," Mr Kelly adds. "In the automotive industry, the bigger companies like Ford and Volvo, with high volumes of products, don't want to run out of the right components, so it's critical for them that suppliers know how things are changing at their production plants. That can be done online."

When it comes to changes in how supply chains operate, larger companies force the pace for smaller businesses, some of which struggle to become "e-ready" or risk losing important contracts.

For purchasers, too, moving purchasing processes online may undermine established trading relationships.

"You can't just say to every supplier that you're going to purchase electronically from now on," Mr Kelly says. "You would have to be a pretty big company to do that."

To these larger companies, the Chambers of Commerce of Ireland, which is one of iCommerce's partners, has warned that conversion to e-business should be fair and inclusive.

But even if all suppliers are given enough time to follow their most valuable clients onto B2B sites or electronic marketplaces, they may still find that online tendering processes push them into dropping their prices in order to win the bid to supply goods.

It's a "double-edged sword", according to Mr Kelly, with the advantages for small suppliers clearly resting in increased access to potential new clients and trading partners.

Being part of a B2B community gives small suppliers a better Web presence than simply having their own company website, Mr Guckian at iCommerce believes. "Members that are part of the electronic marketplace have a greater chance of just being found. Unless you have a finely honed brand, it's difficult to be found on the internet - you are just a tree in a massive forest," he says.

This week, iCommerce is introducing iCommerce Tenders, which will send tenders for services from EU companies to iCommerce members - tenders that they wouldn't normally receive, according to Mr Guckian.

Another recently announced B2B venture is a partnership between TradeNet Ireland (a cross-Border B2B network supported by 15 local authority partners) and Nevada Tele.com, which will provide technology called Easystore to SMEs, which allows them to set up shop online.

TradeNet Ireland hopes the new partnership will spur interest in its existing B2B service, which provides a customised Web page linking members to potential new suppliers and customers relevant to their industry needs. It hopes to increase its membership from 1,640 companies to more than 5,000 in the next two years.

"B2B will give plenty of opportunities to SMEs to tap into bigger markets, such as e-government," says TradeNet's internet marketing executive, Ms Una O'Kane. "Some SMEs may want to get together through TradeNet to form joint ventures and make collective sales to bigger buyers. That kind of clustering is something we would hear a lot about," she says.

New contacts may only be a few mouse clicks away but most SMEs have yet to be convinced of the benefits of electronic marketplaces. Even services such as TradeNet Ireland act as information exchanges rather than e-marketplaces.

"It is really more of a networking tool at the moment. Members can e-mail each other directly through the system, but we don't get involved in the transactions," says Ms O'Kane.

The most recent e-business survey by CCI shows that, although three-quarters of SMEs e-mailed their suppliers and almost a third purchased goods from suppliers online, only 8 per cent said they used e-marketplaces.

Similarly, surveys in Britain suggest SMEs sometimes use the internet to find new suppliers, perhaps even requesting product information or a quote, but then they return to traditional methods of building business relationships - in other words, back to the telephone and invoices through the letterbox, with the internet used for one-off purchases or "spot buying" of hard-to-find items from companies based overseas.

"It's important that companies don't use e-procurement on an ad-hoc basis. It should be part of the whole company's strategy," Mr Guckian notes.

But the CCI survey found that, while 90 per cent of SMEs have computers, only a third actually have an overall e-business strategy.